President’s Budget Offers Robust Agenda for State Unemployment Insurance Reforms

The Obama administration’s proposed 2017 budget contains a wide range of unemployment insurance (UI) proposals. If adopted, they would take an important step toward restoring the vitality of state and federal UI and reemployment programs. Although the chairs of the Senate and House budget committees have announced they will not consider the administration’s budget on any issue, the UI package presents a robust agenda that deserves serious consideration in future policy debates.

The UI budget package offers a mixture of prior administration proposals and bolder additions. Three main areas deserve more detailed explanation: state UI program reforms, greater focus and resources for reemployment services, and permanently-authorized federal benefit extensions. This blog will concentrate on the budget’s reform agenda for state UI programs (mainly at pp. 20-21). Future blogs will discuss the administration’s state UI financing proposal, recommended improvements for reemployment service programs, and a permanent federal benefit extension proposal.

Budget Proposes Key Federal Benefit Standards for State UI Programs

Maintaining state UI programs is essential if the automatic stimulus and income support goals of UI are not going to erode further. As noted in an earlier blog, state UI programs are currently setting record lows for recipiency rates. By including some mandatory federal standards for the first time, the FY 2017 budget is much more realistic than past proposals about changes in the state programs. In the 2016 budget, for example, the administration confined itself to offering incentives to states to provide at least 26 weeks of benefits.

If the traditional norm of 26 weeks of state UI benefits is going to be restored (eight states have abandoned it so far), then a federal benefit standard requiring it is needed—and the administration now clearly recognizes that. The budget also proposes three additional benefit standards: the alternative base period (a way to help more low-wage workers gain monetary eligibility that is found in 39 states), a requirement that states not deny UI eligibility to part-time workers (21 still do), and a mandate that states permit workers to quit jobs for compelling family circumstances (26 states have no accommodation for these quits).

Recent history demonstrates that if we are going to continue delivering UI under our federal-state model, then federal benefit standards must be part of any meaningful UI reform; incentives are not enough. In the case of both work-sharing and UI modernization efforts, for example, significant numbers of states turned down federal incentives—with 22 states still not offering work-sharing and 12 states not accepting UI modernization funds available in 2009 and 2010.

$5 Billion in Modernization Funds Available to States

The administration has not completely abandoned incentives as an element of UI reform. The budget proposes a $5 billion modernization fund that will offer incentives for four years. This approach is a reprise of the 2009 UI modernization program with a larger menu of state options. The administration breaks those options into two categories: “benefit expansion” reforms and “pro-work” reforms. To gain access to a modernization incentive, states will have to adopt one of the benefit expansion reforms and two pro-work reform options. In a nice design touch, if all states do not accept their allocation of the incentives, the funds will be distributed to those states that did so in the fifth year of the program.

The modernization reforms are only generally described and will require further definition. The budget (page 20) gives us initial descriptions. The pro-work reforms offered are (1) reemployment services that intensify as a worker’s unemployment spell lengthens; (2) “improved” (probably this means “in-person”) reemployment services; (3) on-the-job training or apprenticeship programs, or subsidized temporary work programs; (4) relocation assistance programs coupled with in-person reemployment counseling; and (5) state workforce data systems improvements. The benefit reform options are (1) benefit extensions for claimants in approved training; (2) state maximum weekly benefits equal to at least two-thirds of a state’s average weekly wage; and (3) improved eligibility for temporary workers.

These measures will not become law this year, but they are mostly good ideas that will deserve fuller consideration if a more welcoming context for reform arises in coming years.

A Devil in the Details

Buried in the obscure details of the pro-work reform options, however, is a troubling element from past administration proposals. Along with apprenticeships and on-the-job training, this option permits states to provide “voluntary work-based programs for UI claimants.”

Why get concerned by these six words? This language clearly evokes Georgia Works, a program run in the mid-2000s in that state encouraging UI claimants to “voluntarily” provide services to a business in an up-to-eight-week trial. In exchange, claimants received a small stipend and their unemployment benefits. As a policy, Georgia Works was highly questionable and its results were far from impressive when examined by Eileen Appelbaum of the Center for Economic and Policy Research. In short, few Georgia Works participants found jobs, and most placements were in low-wage, unskilled jobs that shouldn’t require weeks of training.

After the Georgia Works program died due to a change in administration in Georgia, a U.S. Department of Labor guidance in early 2010 placed restrictions on future state efforts to emulate this troubling program. Given that there are lots of proven but underfunded or unfunded reemployment programs in the United States, we’re sorry to see this element among the administration’s pro-work options. Going forward, we must monitor this bad policy idea and ensure that no state tries to revive it.